IDEAS home Printed from https://ideas.repec.org/a/gam/jsusta/v9y2017i11p1892-d116375.html
   My bibliography  Save this article

Energy Substitution Effect on China’s Heavy Industry: Perspectives of a Translog Production Function and Ridge Regression

Author

Listed:
  • Boqiang Lin

    (School of Management, China Institute for Studies in Energy Policy, Collaborative Innovation Center for Energy Economics and Energy Policy, Xiamen University, Xiamen 361005, China)

  • Kui Liu

    (The School of Economics, China Center for Energy Economics Research, Xiamen University, Xiamen 361005, China)

Abstract

A translog production function model with input factors including energy, capital, and labor is established for China’s heavy industry. Using the ridge regression method, the output elasticity of each input factor and the substitution elasticity between input factors are analyzed. The empirical results show that the output elasticity of energy, capital and labor are all positive, while the output elasticities of energy and capital are relatively higher, indicating that China’s heavy industry is energy- and capital-intensive. Simultaneously, all the input factors are substitutes, with the substitution between labor and energy having the highest degree of responsiveness. The substitution elasticity between labor and energy is decreasing, while the substitution elasticities of capital for energy and labor are increasing. More capital input can help to improve energy efficiency and thus accomplish the goal of energy conservation in China’s heavy industry.

Suggested Citation

  • Boqiang Lin & Kui Liu, 2017. "Energy Substitution Effect on China’s Heavy Industry: Perspectives of a Translog Production Function and Ridge Regression," Sustainability, MDPI, vol. 9(11), pages 1-15, October.
    • Handle: RePEc:gam:jsusta:v:9:y:2017:i:11:p:1892-:d:116375
    as

    Download full text from publisher

    File URL: https://www.mdpi.com/2071-1050/9/11/1892/pdf
    Download Restriction: no
    File URL: https://www.mdpi.com/2071-1050/9/11/1892/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Pindyck, Robert S, 1979. "Interfuel Substitution and the Industrial Demand for Energy: An International Comparison," The Review of Economics and Statistics, MIT Press, vol. 61(2), pages 169-179, May.
    2. Christensen, Laurits R & Jorgenson, Dale W & Lau, Lawrence J, 1973. "Transcendental Logarithmic Production Frontiers," The Review of Economics and Statistics, MIT Press, vol. 55(1), pages 28-45, February.
    3. Chang, Kuo-Ping, 1994. "Capital-energy substitution and the multi-level CES production function," Energy Economics, Elsevier, vol. 16(1), pages 22-26, January.
    4. Ma, Hengyun & Oxley, Les & Gibson, John & Kim, Bonggeun, 2008. "China's energy economy: Technical change, factor demand and interfactor/interfuel substitution," Energy Economics, Elsevier, vol. 30(5), pages 2167-2183, September.
    5. Koetse, Mark J. & de Groot, Henri L.F. & Florax, Raymond J.G.M., 2008. "Capital-energy substitution and shifts in factor demand: A meta-analysis," Energy Economics, Elsevier, vol. 30(5), pages 2236-2251, September.
    6. Welsch, Heinz & Ochsen, Carsten, 2005. "The determinants of aggregate energy use in West Germany: factor substitution, technological change, and trade," Energy Economics, Elsevier, vol. 27(1), pages 93-111, January.
    7. Hirofumi Uzawa, 1962. "Production Functions with Constant Elasticities of Substitution," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 29(4), pages 291-299.
    8. Ozatalay, Savas & Grubaugh, Stephen & Long, Thomas Veach, II, 1979. "Energy Substitution and National Energy Policy," American Economic Review, American Economic Association, vol. 69(2), pages 369-371, May.
    9. Griffin, James M & Gregory, Paul R, 1976. "An Intercountry Translog Model of Energy Substitution Responses," American Economic Review, American Economic Association, vol. 66(5), pages 845-857, December.
    10. Berndt, Ernst R. & Christensen, Laurits R., 1973. "The translog function and the substitution of equipment, structures, and labor in U.S. manufacturing 1929-68," Journal of Econometrics, Elsevier, vol. 1(1), pages 81-113, March.
    11. Kim, H Youn, 1992. "The Translog Production Function and Variable Returns to Scale," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 546-552, August.
    12. Lin, Boqiang & Xie, Chunping, 2014. "Energy substitution effect on transport industry of China-based on trans-log production function," Energy, Elsevier, vol. 67(C), pages 213-222.
    13. Xie, Chunping & Hawkes, Adam D., 2015. "Estimation of inter-fuel substitution possibilities in China's transport industry using ridge regression," Energy, Elsevier, vol. 88(C), pages 260-267.
    14. Prywes, Menahem, 1986. "A nested CES approach to capital-energy substitution," Energy Economics, Elsevier, vol. 8(1), pages 22-28, January.
    15. Lin, Boqiang & Li, Jianglong, 2014. "The rebound effect for heavy industry: Empirical evidence from China," Energy Policy, Elsevier, vol. 74(C), pages 589-599.
    16. K. Sato, 1967. "A Two-Level Constant-Elasticity-of-Substitution Production Function," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 34(2), pages 201-218.
    17. Field, Barry C & Grebenstein, Charles, 1980. "Capital-Energy Substitution in U.S. Manufacturing," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 207-212, May.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Khalid, Waqar & Özdeşer, Hüseyin & Jalil, Abdul, 2021. "An empirical analysis of inter-factor and inter-fuel substitution in the energy sector of Pakistan," Renewable Energy, Elsevier, vol. 177(C), pages 953-966.
    2. Hyo-Jin Kim & Su-Mi Han & Seung-Hoon Yoo, 2018. "Measuring the Economic Benefits of Industrial Natural Gas Use in South Korea," Sustainability, MDPI, vol. 10(7), pages 1-10, June.
    3. Samarth Kumar & David Schönheit & Matthew Schmidt & Dominik Möst, 2019. "Parsing the Effects of Wind and Solar Generation on the German Electricity Trade Surplus," Energies, MDPI, vol. 12(18), pages 1-17, September.
    4. Chatterjee, Santanu & Lebesmuehlbacher, Thomas & Narayanan, Abhinav, 2021. "How productive is public investment? Evidence from formal and informal production in India," Journal of Development Economics, Elsevier, vol. 151(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Liu, Kui & Bai, Hongkun & Yin, Shuo & Lin, Boqiang, 2018. "Factor substitution and decomposition of carbon intensity in China's heavy industry," Energy, Elsevier, vol. 145(C), pages 582-591.
    2. He, Yongda & Lin, Boqiang, 2019. "Heterogeneity and asymmetric effects in energy resources allocation of the manufacturing sectors in China," Energy, Elsevier, vol. 170(C), pages 1019-1035.
    3. Lagomarsino, Elena, 2020. "Estimating elasticities of substitution with nested CES production functions: Where do we stand?," Energy Economics, Elsevier, vol. 88(C).
    4. Kim, Jihyo & Heo, Eunnyeong, 2013. "Asymmetric substitutability between energy and capital: Evidence from the manufacturing sectors in 10 OECD countries," Energy Economics, Elsevier, vol. 40(C), pages 81-89.
    5. Koetse, Mark J. & de Groot, Henri L.F. & Florax, Raymond J.G.M., 2008. "Capital-energy substitution and shifts in factor demand: A meta-analysis," Energy Economics, Elsevier, vol. 30(5), pages 2236-2251, September.
    6. Dong Hee Suh, 2015. "Declining Energy Intensity in the U.S. Agricultural Sector: Implications for Factor Substitution and Technological Change," Sustainability, MDPI, vol. 7(10), pages 1-14, September.
    7. Suh, Dong Hee, 2015. "Identifying Factor Substitution and Energy Intensity in the U.S. Agricultural Sector," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205264, Agricultural and Applied Economics Association.
    8. Wang, Ailun & Lin, Boqiang, 2020. "Structural optimization and carbon taxation in China's commercial sector," Energy Policy, Elsevier, vol. 140(C).
    9. Dargay, Joyce M., 1980. "The Demand for Energy in Swedish Manufacturing," Working Paper Series 33, Research Institute of Industrial Economics, revised Aug 1982.
    10. Haishu Qiao & Ying Li & Julien Chevallier & Bangzhu Zhu, 2016. "Capital–energy substitution in China: regional differences and dynamic evolution," Post-Communist Economies, Taylor & Francis Journals, vol. 28(4), pages 421-435, October.
    11. Sharimakin, Akinsehinwa, 2019. "Measuring the energy input substitution and output effects of energy price changes and the implications for the environment," Energy Policy, Elsevier, vol. 133(C).
    12. Khalid, Waqar & Özdeşer, Hüseyin & Jalil, Abdul, 2021. "An empirical analysis of inter-factor and inter-fuel substitution in the energy sector of Pakistan," Renewable Energy, Elsevier, vol. 177(C), pages 953-966.
    13. Malliet, Paul & Reynès, Frédéric G., 2022. "Empirical estimates of the elasticity of substitution of a KLEM production function without nesting constraints: The case of the Variable Output Elasticity-Cobb Douglas," Conference papers 333423, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    14. Ma, Hengyun & Oxley, Les & Gibson, John & Kim, Bonggeun, 2008. "China's energy economy: Technical change, factor demand and interfactor/interfuel substitution," Energy Economics, Elsevier, vol. 30(5), pages 2167-2183, September.
    15. Frédéric Reynés, 2019. "The Cobb-Douglas function as a flexible function: A new perspective on homogeneous functions through the lens of output elasticities," SciencePo Working papers Main hal-03403639, HAL.
    16. Pablo-Romero, María del P. & Sánchez-Braza, Antonio, 2015. "Productive energy use and economic growth: Energy, physical and human capital relationships," Energy Economics, Elsevier, vol. 49(C), pages 420-429.
    17. Rentschler, Jun & Kornejew, Martin & Bazilian, Morgan, 2017. "Fossil fuel subsidy reforms and their impacts on firms," Energy Policy, Elsevier, vol. 108(C), pages 617-623.
    18. repec:hal:spmain:info:hdl:2441/62drs526639gbqbrni9v9kvsv5 is not listed on IDEAS
    19. Reynès, Frédéric, 2019. "The Cobb–Douglas function as a flexible function," Mathematical Social Sciences, Elsevier, vol. 97(C), pages 11-17.
    20. Lin, Boqiang & Ahmad, Izhar, 2016. "Energy substitution effect on transport sector of Pakistan based on trans-log production function," Renewable and Sustainable Energy Reviews, Elsevier, vol. 56(C), pages 1182-1193.
    21. Hepburn, Cameron & Teytelboym, Alexander & Cohen, Francois, 2018. "Is Natural Capital Really Substitutable?," INET Oxford Working Papers 2018-12, Institute for New Economic Thinking at the Oxford Martin School, University of Oxford.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:gam:jsusta:v:9:y:2017:i:11:p:1892-:d:116375. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: MDPI Indexing Manager (email available below). General contact details of provider: https://www.mdpi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.